Design andDesign and planning of the balanced scorecard - A case study Planning of the Balanced Scorecard - A Case Study

Human Systems Management 26 (2007) 217227 217IOS Press

Design and planning of the balancedscorecard: A case studyMing-Hon Hwang a,b and Hsin Rau b,a Department of Information Management, Diwan College of Management, Taiwanb Department of Industrial Engineering, Chung Yuan Christian University, Taiwan

Abstract. In the industrial economy, evaluating company performance based on financial results was good enough. However,in the current globalized and highly competitive environment, maintaining long term competitiveness requires companies toengage in overall strategic planning and performance evaluation. The balanced scorecard is a tool or method for balancing anorganizations performance and can react to situations where a companys direction becomes disoriented. This approach assistsin strategy planning, process management, and performance evaluation from four perspectives, including financial, customer,internal process, and learning and growth. Good strategy planning provides companies with a correct management direction,correct process management ensures the efficient execution of plans, and correct performance evaluation illustrates the executionresults. This study mainly focuses on how a large rubber company in Taiwan utilizes the balanced scorecard in its organization. Asthe technical perspective is important in the rubber keypad industry, besides the four above perspectives, this company has addedthe technical perspective. By introducing this company and its progress in implementing the balanced scorecard, this study hopesto provide other companies, especially rubber companies, with a planning direction and reference for the future implementationof the balanced scorecard.Keywords: Balanced scorecard, competitive advantage, performance evaluation

Ming-Hon Hwang is a PhD candidateat the Department of Industrial Engi-neering, Chung-Yuan Christian Univer-sity, and a senior lecturer at the Depart-ment of Information Management, Di-wan College of Management, Taiwan.His research interests include supplychain management and strategy manage-ment.

Hsin Rau is a Professor of IndustrialEngineering Department at Chung-YuanChristian University, Taiwan. He re-ceived the PhD degree from UCLA. Hisresearch interests include e-business andsupply chain management. He has pub-lished many papers in journals and con-ferences.

*Corresponding author. E-mail: [email protected]

1. Introduction

In the past, companies used economies of scaleto produce abundantly standardized products, to ac-quire customers at the lowest possible price, and tosucceed in the industry. It was important to obtaina simple method of assessing company financial per-formance. However, given improvements in technol-ogy and global market transparency, global companiesseem to be competing locally. Customers thus have theability to find products or services with the greatestcustomer value and purchase them as soon as possi-ble. Customer value is the measurement of customersfeelings towards a company, and comprises the prod-uct, service and other intangeables provided by thecompany. Thus, to survive and compete against globalcompetitors, companies have to make a total strategyplan and an operating process. The balanced scorecardis a tool or method for balancing organizational per-formance and can help managers by providing themwith early warning and thus facilitating rapid responseto a bad company decision. During the past ten years,a belief has grown among academics and industry thatcompanies are excessively reliant on financial indi-

0167-2533/07/$17.00 2007 IOS Press and the authors. All rights reserved

218 M.-H. Hwang and H. Rau / Design and planning of the balanced scorecard

cators for performance evaluation, despite this formof evaluation not helping their competitiveness. Chowet al. [1] pointed out that 80% of large American en-terprises wish to change traditional performance eval-uation and measurement systems to improve their ca-pacity for strategy execution. Johnson and Kaplan [2]noted that in many big companies, managers use shortterm financial measurements as a basis for decision-making, especially earnings per share and profit, toreview the effects of each project on those measure-ments.

However, investments which are helpful to long termeconomic development, such as research development,process improvement, and training, have been ignoredby managers who are focused on short term finan-cial performance at the expense of long-term com-petitiveness. For example, Xerox was quite success-ful in leasing copy machines, and their financial re-ports indicated excellent performance. However, thecompany ignored customer complaints regarding theirproducts and dissatisfaction with pricing, issues whichwere not reflected in the performance measurement,and the company eventually faced a financial crisisas a result of these issues. Hoffecker and Golden-berg [3] believed that short-sighted companies that fo-cus on a single false performance dimension are atrisk of suffering from weak company strategy. Kaplanand Norton [4] believed traditional financial perfor-mance measures were effective in the industrial age,but had been discarded by companies seeking newtechnologies. Managers seek a balance between finan-cial and other performance. Christopher [5] empha-sized that traditional performance evaluation cannothelp teams understand their operations and capacities,or improve their performance. These result measuresare mostly internal financial indicators, including rev-enue, gross margin, cost and debts, and few of them in-clude a cross-department index. Maisel [6] mentionedthat traditional financial performance evaluations can-not be associated with various strategies, creating bar-riers to strategy execution, competitiveness improve-ment, and profitability. Hoffecker and Goldenberg [3]thought that former performance evaluation methodsbased on traditional accounting systems cannot pro-vide information about customers and competitors, andlosing this important information means losing aware-ness of market opportunities. Zeleny [7] believes thatdecision making occurs only when additional dimen-sions, such as an estimated reliability, a judges credi-bility, or the cost of erroneous judgments are broughtin. Clearly, no one-dimensional or single-criterion de-

cision problem can ever exist. Other than choosing thetool of measurement, there remains very little to bedecided. Atkinson et al. [8] believed that performanceevaluation trends involve improving current financialindicators and non-financial indicators (e.g., customersatisfaction, employee satisfaction, and product failurerate). Zee and Jong [9] observed that traditional eval-uations, like regular sales and sales revenues indicatepast results rather than future prospects. In terms of theanalysis of stock holder value, future forecasts shouldbe based on the current status. However, the problem isthat the financial evaluation is the final result, and canbe obtained only after executing different activities. Incontrast, the balanced scorecard covers areas like cus-tomers, internal processes, team innovation, and devel-opment progress, and helps in methodically analyzingteam activities and tracing the execution results, finallyleading the company to financial success.

Thus, this study focuses on company P, and de-scribes in detail how it integrates the balanced score-card into its strategy planning. The remainder of thispaper is organized as follows: Section 2 describes thecontent of the balance scorecard. Section 3 then intro-duces the case (i.e., Company P). Section 4 explainsthe implementation of the balance scorecard for Com-pany P. Conclusions are finally drawn in Section 5.

2. Content of the balanced scorecard

2.1. Origin

The balanced scorecard concept dates back to 1988,when KPMG designed a performance evaluation sys-tem for APPLE. Later, in 1990, the Nolan Norton In-stitute sponsored a research project entitled evalua-tion of future organization performance, led by Pro-fessor Robert Kaplan of Harvard University as a rep-resentative of academia and the CEO of Nolan Nor-ton David Norton as a representative of industry toevaluate the performance of 12 companies. The projectwas completed in December of 1990 and published inthe Harvard Business Review in 1992. Norton and Ka-plan mentioned the concept of the balanced scorecard,which applies an overall management system cover-ing four perspectives to help managers acquire com-plete information very quickly, and learn the status oftheir business. The balanced scorecard is a total man-agement system for translating strategy into action, andits core value is achieving the company vision andstrategy. The key objective is to transform company

M.-H. Hwang and H. Rau / Design and planning of the balanced scorecard 219

strategy into actions to improve competitiveness. Thefour perspectives include the traditional financial indi-cators and add three non-financial operating indicators,namely the customer perspective, the internal processperspective, and the learning and growth perspective.These four perspectives transform an organizationsvision and strategy into a new performance evalua-tion system with objectives and measures. It consoli-dates individual, departmental, cross-departmental, re-sources and projects of the company to achieve com-mon objectives, and it associates company strategy, vi-sion, and direction with a strategic performance man-agement system. In practice, many companies usingthe balanced scorecard consider it to be an importantmanagement process, being used for individual andteam objectives, the salary system, resource alloca-tion, budget estimation and planning, as well as strat-egy feedback and learning. Consequently, the balancedscorecard has been promptly developed as a strategicmanagement system.

2.2. Definition

Niven [10] thinks that the balanced scorecard isa strategic measurement tool carefully selected bycompanies, that leaders use to express investmentachievements to employees and stakeholders, and tomotivate the achievement of objectives. He also be-lieves that the balanced scorecard incorporates mea-surement systems, strategy management tools, andcommunication tools. Chow et al. [1] pointed outthat the balanced scorecard associates traditional andstrategic performance evaluation, and helps a companyto achieve objectives such as long term strategy, inno-vation, and customer values. Kaplan and Norton [4]mentioned in the Harvard Business Review that thebalanced scorecard is a strategic management tool forthe association of company strategy and key perfor-mance indexes, seeking a balance between long termand short term objectives, financial and non-financialmeasurements, external and internal performance per-spectives, lagging and leading indicators, as well assubjective and objective perspectives.

2.3. Advantages

Chow et al. [1] believe that the advantage of the bal-anced scorecard lies in helping companies to integratestrategy, organization framework, and vision into man-agement systems, to translate the long term strategyand innovation of customer value into operational ac-

tivities, and to balance the competitiveness and shortterm fortunes of stockholders via the combination oftraditional and modern indicators. Martin [11] thinksthat traditional performance indicators tend to measurefinancial and accounting aspects, impacting long termproductivity and profits, whereas companies should fo-cus on synthetic indicators like customer reactions,profits, quality, and flexible production selection. Thebalanced scorecard provides measurements of those in-dicators. Berman [12] stated that the balanced score-card enables companies to focus on necessary manage-ment and measurement indicators. Moreover, it alsoenables efficient communication of team objectives,and companies can understand how to achieve strategicsuccess by using the balanced scorecard. Berman [12]also believes that companies should include 25 to60 key performance indicators in the balanced score-card. Additionally, Hanson [13] thinks that the mainadvantage of the balanced scorecard lies in helpingall organization members to cooperate on develop-ing the future of the firm. MacStravic [14] mentionedthat the balanced scorecard possesses six advantages:(1) An Increase of firm insights in the understandingof customers, (2) Readjustment of internal operations,(3) Stockholder satisfaction, (4) Customer acquisition,(5) Improving customer relationships, (6) Increasingcustomer loyalty. Frigo and Kip [15] pointed out thatMotorola has improved in three key areas after us-ing the balanced scorecard, including vision system-ization, quality improvement, and execution. There-fore, the balanced scorecard is an important tool forproviding focus in strategic management.

3. Case study of Company P

Company P was established in 1972, and has ac-cumulated over 30 years of experience. It has builtup an excellent technical team, which explains itsleading position in producing conductive rubber key-pads, and having a global customer-base. Productspreviously produced by Company P include mobilephone parts, computers, calculators, desk phones, re-mote controls, car remote controls, translators, and faxmachines (Fig. 1).

Company P not only looks to reduce costs and sharetheir profits with clients, but it also stresses productquality, which itself depends on a perfect quality con-trol system. Therefore, machines must periodically bereformed, fleshware should be constantly improved re-gardless of market competition, and efforts must be


Fig. 1. Products of Company P.

Fig. 2. The organization of Company P.

made to continue stressing internal management, im-prove work efficiency, reduce costs and provide cus-tomers with feedback. As a good corporate citizen,Company P has important community responsibilities.Moreover, its core values include innovation, rapidity,pragmatism, diligence and thrift, described as follows:

Innovation: Aggressive, brave, understanding in-ternal and external changes, able to adapt tochanges, continuously looking for improvementand creating new opportunities.

Rapidity: Agile, well-executed, efficiently gain-ing a leading position.

Pragmatism: Working effectively and honestly.Not being edgy or hypocritical, and seeking to ob-tain stable progress.

Diligence and thrifty: Being diligent and thrifty,concentrating on the business, and making thingssimple and clear.

To realize the above values, Company P has designedtheir organization as shown in Fig. 2.

The main goal of Company P is to make a profit. Toachieve this goal Company P extends secondary objec-tives from this principle. Company P has adopted theslogan 20103100 to describe the direction in whichthey need to go in to achieve their target. Company Phopes to bring their company to a new level during the21st century and to rise to big challenges. The sloganhas the following meaning:

2010 stands for the Year 2010 (now is the Year2006)

3100 stands for company expectations: (1) Torank among the top three in terms of global mar-ket share, (2) To obtain 100 technical patents,(3) To make one billion NTD in sales revenues.Company P will work with its current organiza-tion and resources, relying on business core val-ues, to achieve the above vision. The vision isshown in Fig. 3.


Fig. 3. Company P vision 20103100.

4. Implementation of the balanced scorecard

4.1. Strategy planning and process

Rather than using traditional financial performanceindicators based on internal accounting systems, whichcannot provide important information about customersand competitors, resulting in lost awareness of mar-ket opportunities, Company P helps managers to getcomplete information to understand the status of theirbusinesses, with the balanced scorecard providing thebasis of firm strategic planning. Additionally, with the11 steps of the balanced scorecard developed by Olveet al. [16] and the background information of four per-spectives developed by Niven (Fig. 4 [10]), Company Pcreates the process of strategy planning (Fig. 5). Fig-ure 5 shows that Company P first builds the companyvision, which is identified by the management teamand agreed on by the entire organization. After definingthe vision, they must establish accurate objectives forits achievement. However, before setting objectives,various factors should first be analyzed. Company Puses the inner factors analysis, competitors analysis,and five forces analysis to analyze business operations.Furthermore, due to the professionalism of the rub-ber industry, Company P has added the technical per-spective to supplement the four perspectives of the bal-anced scorecard as a direction for objective setting. Af-ter objectives are set, the action plans for achievingthem needs to be defined. If there are no problems dur-ing the planning of action plans, the plan executionand performance evaluation step is next; however, ifthere are problems in the objective setting when defin-ing the action plan, then you have to get back to the

objective setting step to reset the objectives. Once atthe plan execution and performance evaluation step, ifthere is a problem executing the action plans or doingthe performance evaluation, then you have to get backto the action plan definition step to check the originalaction plan. On the contrary, if there are no problemsat the plan execution and performance evaluation step,the objectives and action plan set by Company P are al-right, and Company P can successfully meet its target.

4.2. Inner factors analysis

Company P has to perform the inner factors analysisto understand its advantages and weaknesses in orderto set correct objectives. Company P generates its ad-vantages and weaknesses with the inner factors analy-sis as follows:

Advantages:

Respond to requests for low quantity and diversi-fied products.

Strong resources and highly cooperative.

Weaknesses:

Insufficient technical human resources. The appearance of the office building is not good. Insufficient research and development. Big factories have low intentions of placing or-

ders. Insufficient technical staff causing reluctance to

invest. Others have already applied Quality Assurance

Systems (e.g., Company A, Company B), andtheir technical information is stored and madeavailable to the public.


Fig. 4. Background information of four perspectives [9].

Focusing on the weakness of the Company P, thisstudy proposes a solution as follows:

Recruit highly educated new employees and trainthem to increase their competence.

Redecorate the appearance and build a large stan-dardized factory.

Train talented staff as R&D specialists, and re-cruit external researchers.

Improve factory scope, technical staff, customerservice and satisfaction to increase the possibilityof receiving orders from big factories.

Employee training. Sufficient technical staff cansolve the resource problem in company invest-ment.

Company P also has a Quality Assurance Systemwhich is filed and made available to the public.

4.3. Competitors analysis

The competitors of Company P are Company A,Company B, and Company C. Their advantages and

weaknesses compared with Company P are as follows:(1) Company A

Their main products are PC film, P + R, Rub-ber, Soft IC, and films in plastic keypads. Theadvantages of Company A are: Sufficient resources for technical and market

development. Publically listed company, with sufficient fi-

nancial support. Sufficient capital, with plans for equipment

performance improvement and employeetraining, indicating generally bright prospects.

The comparisons between Company P andCompany A are listed in Table 1.

(2) Company BThe products of Company B consist of metalrubber coated keypads, double printing keypads,EL lamps, plastic metal domes, plastic films,and mobile phone covers. The advantages ofCompany B are:


Fig. 5. Process of strategy planning for Company P.

Table 1Comparison between Company P and Company A

No Item Company P Company A1 Number of employees Insufficient Good2 Stock listed No Good3 Financial support, having plans for equipment performance improvement and Insufficient Good

employee training, bright prospects

Sufficient employees, especially in engineer-ing and R&D.

Publically listed company, with full capitalsupport.

Stable structure, with irreplaceable advan-tages in terms of resources.

Excellent appearance of the office building,equipment, and technical staff, with consis-tent orders from big factories.

Efficient factory management and decisionprocess.

The comparisons between Company P andCompany B are listed in Table 2.

(3) Company CCompany C has transformed itself into an elec-tronics company, and their main products arerubber, P + R, bonding, lasers and PC films.The comparison between Company P and Com-pany C are listed in Table 3.

4.4. Five forces analysis

Considering current resources, organization, teamscope, competitive analysis, the admission of Taiwanto the WTO, competition and threats from the rapidgrowth of China enterprises, and the current inter-national economic situation, this subsection conductsa five forces analysis for Company P. This five forcesanalysis should help to clarify the future direction forCompany P and help it identify a correct strategy,reduce risks, and achieve maximum profits, creatinga win-win situation. Hopefully, Company P can entera new phase in the 21st century and continue to grow.The five forces analysis devised by Porter [17] de-termines industry profitability or attractiveness basedon five competitive forces: threats from potential en-tries, threats from substitutors, price negotiation powerof the buyer, price negotiation power of the supplier,and industry competitors. This analytical perspective


Table 2Comparison between Company P and Company B

No Item Company P Company B1 Number of employees, especially in engineering and R&D Insufficient Good2 Stock listed company, capital supports new projects within budget Not listed Good3 Stable structure, irreplaceable advantages in resource Fair structure and resources Good4 Excellent appearance, equipments and technic, consistent orders from big factories Insufficient Good5 Efficient factory management Fair Good

Fig. 6. Strategic map for Company P.

helps clarify the industry characteristics, which influ-ence competitiveness and profitability in the industry.From a strategic point of view, enterprises face compe-tition from competitive forces.This study uses the fiveforces of Porter for Company P. The synthetic analysisis shown in Table 4.

4.5. Strategic map

Following the inner factors analysis, competitorsanalysis, and five forces analysis for Company P, fu-ture objectives and action plans can be defined, and

Table 3Comparison between Company P and Company C

No Item Company P Company C1 Technical staff Insufficient Enough2 Equipment Insufficient Enough3 Capital Fair Enough

the balanced scorecard can be used to evaluate per-formance. The balanced scorecard includes financial,customer, internal process, technical, and learning andgrowth perspectives. Figure 6 shows the strategic mapfor Company P for the year 2010.


Table 4Synthetic analysis

Price negotiation power Substitute products Substitute level Entry difficultyWhom Level Product Substitute Product Level Category Level ExamplesMaterial supplier Middle Touch screen Mobile phone High Rough Low Remote control, toy, telephonePartner Strong Membrane switch PDA High Fine High Auto partsCustomer Weak PC film General Low Extra work High Mobile phone, PDA

Table 52006 annual objectives for Company P

Perspective No Strategy Measurement KPI performance indicator Status (/year) Target (/year)Financial 1 Increase sales sales (new product) Annual growth 25% 50%

sales ROI 10% 20%

Customer 2 Increase customer Customer loyalty Continuous order rate 99%satisfaction Customer satisfaction Customer Customer 99%


Table 6Action plans of Company P

Perspectives Strategy Indicator Action plan Schedule/Month Owner Plan1 2 3 4 5 6 7 8 9 10 11 12 execution

Finance Increase Double Quantity increase Sales sales of new products 50%

Quantity increase of mature products 100%

Customer Improve Continuous order Improve Sales/R&D customer over 95% service qualitysatisfaction (customer loyalty) Reduce failure rate QC/Product

lineAccurate delivery Production

Management/Product line

Internal Reasonable Cost down Low cost material Sales/RD cost 15% Reduce failure rate QC/Production

Shorten Engineering/production cycle production

Technical R&D 20 pcs/ Staff optimization Management/ Competence year R&D

Purchase patent R&Dtechniques

Learning Multifunctional Basic employees Building annual Management and growth 30 hrs training and related

Engineers evaluation system departments50 hrsMiddle staff 20 hrsManagers 36 hrs

ing. By introducing the steps and data of the balancedscorecard of Company P, this study expects to provideother enterprises, especially the rubber industry, withan important reference for use in their future imple-mentation of the balanced scorecard.

References

[1] C.W. Chow, M.H. Kamal and J.E. Williamson, Applying thebalanced scorecard to small companies, Management Account-ing (August) (1997), 2127.

[2] H.T. Johnson and R.S. Kaplan, Relevance Lost, Harvard Busi-ness School Press, Boston, MA, 1987.

[3] J. Hoffecker and C. Goldenberg, Using the balanced scorecardto develop Epstein and measure, Cost Management (1994), 6.

[4] R.S. Kaplan and D.P. Norton, The balanced scorecard Mea-sures that drive performance, Harvard Business Review (Janu-ary/February) (1992), 7179.

[5] M. Christopher, How the right measure help teams excel, Har-vard Business Review (May/June) (1994).

[6] L.S. Maisel, The balanced scorecard approach, Journal of CostManagement (Summer) (1992), 4752.

[7] M. Zeleny, Human Systems Management Integrating Knowl-edge, Management and Systems, World Scientific, 2005.

[8] A.A. Atkinson, J.H. Waterhouse and R.B. Wells, A stakeholderapproach to strategic performance measurement, Sloan Man-agement Review (Spring) (1997), 2537.

[9] V.D. Zee and B.D. Jong, Alignment is not enough: Integratingbusiness and information technology management with the bal-anced business scorecard, Journal of Management InformationSystem 16(2) (1999), 137156.

[10] P.R. Niven, Balanced Scorecard Step by Step: Maximizing Per-formance and Maintaining Results, Wiley, 2002.

[11] R. Martin, Do we practice quality principles in the performancemeasurement of critical success factors, Total Quality Manage-ment (Dec.) (1997), 429444.


[12] S.J. Berman, Using the balanced scorecard in strategic com-pensation, ACA News (Jun.) (1988), 1619.

[13] J. Hanson, The balanced scorecard: Not just another fad, CreditUnion Executive (Jan./Feb.) (2000), 1216.

[14] S. MacStravic, A really balanced scorecard, Health Forum(May/Jun.) (1999), 6467.

[15] M.L. Frigo and K. Kip, 1998 CMG survey on performancemeasurement, Tips on Management Update (May) (1998), 13.

[16] N.G. Olve, J. Roy and M. Wetter, in: Performance Drivers a Practical Guide to Using the Balanced Scorecard, Wiley,1998, pp. 4849.

[17] M.E. Porter, Competitive Strategy: Techniques for AnalyzingIndustries and Competitors, The Free Press, New York, 1980.

Documents

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